If you’re an investor, you probably know the difficulty of unearthing winning stocks from the hundreds of mediocre ones that litter the market. Imagine then, the challenge of global money managers who are expected to read the tea leaves on the complex interplay of economics, politics and market forces, to select countries that promise the best investment returns.
Ruchir Sharma, as head of emerging markets and chief global strategist at Morgan Stanley Investment Management, has this unenviable mandate. In his rather modestly titled book, The Rise and Fall of Nations , he reveals his trade secrets to identifying these winning nations, assimilated from hobnobbing with presidents and plutocrats, military leaders and CEOs.
Ten signals This book pithily presents 10 key signals that should help the reader sift through global economies to separate the potential Usain Bolts, from the also-rans. After briefly warning of the dangers of extrapolating brief bursts of prosperity into ‘happily-ever-after’ scenarios, the book dives straight into the promised ten signals. All of the 10 signals, neatly delineated into 10 chapters, are quantified and supported by country-specific examples.
The really interesting parts of the book lie in the author’s ability to blithely overturn conventional wisdom while making his points. In the very first chapter, for instance, Sharma argues that a teeming population and influx of immigrants, far from being a burden on a nation, are essential pre-conditions to its prosperity.
He proves, with statistics, that no country with a reasonably long period of GDP expansion has managed this without a rising working age population. For countries not blessed with favourable demographics, he suggests a policy of open borders to attract talent. He urges active measures to encourage women and retirees to rejoin the workforce.
Elsewhere, he argues that modest inflation is key to long periods of sustainable growth and that high inflation must be tamed before growth can take off.
He also demolishes the argument that democracies fail at delivering growth, while ruthless dictators can ‘command’ the economy to perform. Citing 124 nations who managed healthy 5 per cent-plus GDP growth for a full decade, he states that 64 of these were democracies and only 60 dictatorships. He points out that the much-admired China did not accelerate until it began to embrace free market principles.
The key takeaway here is that if you’re looking for a country heading for boom times, look for one with a popularly elected new leader from a new regime. He or she must work their magic within the first two or three years of their term. And be wary of leaders who cling on to power, or meddle too much in business.
Signposts to a boom Dismissing fanciful theories about a flat world and a global services boom to replace manufacturing, the author makes a compelling case for governments to put factories first and focus on manufacturing, to kick-start growth and employment.
Countries that make the most of geographical sweet spots, open their borders to trade and manage to keep their investment rates at 25-35 per cent of GDP, the book concludes, are the ones most likely to get on the growth elevator.
It offers equally clear signposts to looming trouble too. To spot economies that are heading into hot water, Sharma advocates scanning through each country’s Forbes billionaires list to sift ‘good’ billionaires from ‘bad’ ones. Here, ‘bad’ billionaires are identified as ones hailing from corruption-prone sectors such as construction, real estate, gambling, mining while the good ones come from innovative industries such as technology, consumer products, life sciences and so on. Any country which shows bad billionaires lording it over the list, Sharma warns, is headed for trouble.
There’s some good news for India tucked away here, as good billionaires have seen their wealth rise by 22 percentage points in the last five years to make up a 53 per cent share of total billionaire wealth by 2015. Other clear markers to an economy likely to fall off a cliff — are a current account deficit that stays above 5 per cent, rising private debt and soaring asset prices, apart from locals seeking out safe-havens like gold (Remember India during UPA II?).
Recent history The book offers an excellent update on what happened to all the major (and quite a few minor) economies of the world, after they were battered by the global credit crisis of 2008.
Given that Sharma buttresses every point with a truckload of facts and taps into prodigious research by the author’s global network, it may serve as good reference material for researchers and students too. That the book is shorn of market jargon and has writerly flourishes and juicy anecdotes to liven it up, should hook more casual readers too. But it is certainly not a breezy weekend read, as every chapter (and almost every other page) is packed with statistics. If you don’t have a head for numbers, these can come as a speed-breaker.
Also a let-down is the fact that India gets very few mentions in this incisive SWOT analysis of global economies. Even as the author traverses the world in picking up evidence for his ten signals, freely zipping from Mexico and Colombia to Rwanda and Vietnam, he is careful to avoid too many mentions of his home country.
So, if you are really curious about whether India is destined to take the growth elevator, you will have to use the signposts offered by the book to draw your own conclusions. With a newly elected leader, much enthusiasm for reforms, rising ‘good’ billionaires, tamed inflation and contained deficits, along with good demographics, the book did make me realise how much India has going for it in today’s challenging global milieu. All it needs to do is seize the moment.